Chapter 08 - Location Planning and Analysis

Solutions
1.
Profit =
(Rev/unit VC/unit)Q FC
Omaha: ($185/unit $36/unit)8,000 units $1,200,000 = $8,000
K.C.:
($185/unit $47/unit)12,000 units $1,400,000 = $256,000
2.

Location
Rev/unit
VC/unit
FC

A
$2.65
1.76
$5,000

B
$2.65
1.76
$5,500

C
$2.65
1.76
$5,800

8-1

Chapter 08 - Location Planning and Analysis

specified profit + FC
Rev/unit VC/unit
b. Profit = (Rev/unit VC/unit)Q FC
a. Q =

3.

A
$800,000
$14,000
$17,000

FC
VC/unit
Rev/unit

=
=

A
16,854
$13,690

B
17,416
$14,080

C
17,753
$14,670

B
$920,000
$13,000
$17,000

a. TC = VC/unit x Q + FC
[A]
[B]
$14,000Q + $800,000 = $13,000Q + $920,000
Solving, Q = 120 units
b. A: 0 to 119
B: 121 or more
4.

A
$250,000
500

FC/year
VC/unit

C
$50,000
1,000

2,500

a. 500
A (new location)

400
TC
($000)

300

[250]

C (expansion)
200 B (subcontract)
100

[50]
0
B

33.3

100

200

300
No. of Boats/yr.

8-2

400

Chapter 08 - Location Planning and Analysis

b. C (from graph)
c. Subcontracting prices are probably more precise, subcontracting provides another source of
supply. Expansion would allow more control and flexibility.
5.
FC

A
$254,000

B
$25,000

C
$120,000

500

2,500

1,000

VC/unit

TC = VC/unit x Q + FC
A: $500(150) + $254,000 = $329,000
B: $2,500(150) + $25,000 = $400,000
C: $1,000(150) + $120,000 = $270,000*
6.
Lease, equipment

Memphis
$40,000

Biloxi
Birmingham
$60,000
$100,000

Transportation

50,000

60,000

25,000

Fixed Costs

$90,000

$120,000

$125,000

$8

$4

$5

VC/unit

Memphis

Biloxi

$170,000

$160,000

TC = VC/unit x Q + FC:
7.

City
$7,000

Outside
$4,700

VC/unit

$30

$40

Rev/unit

$90

$90

FC/month

Profit = (rev/unit VC/unit) FC

a. P200
P300

City
$5,000

Outside
$5,300*

11,000*

10,300

b. ($90 $30)Q $7,000 = ($90 $40)Q 4,700

Solving, Q = 230 cars

8-3

Birmingh
am
$175,000

Chapter 08 - Location Planning and Analysis

8.

9.

Factor
1. Convenience for
customers
2. Attractiveness of
building
3. Nearness to raw
materials
4. Large amounts of
power
5. Pollution
controls
6. Labor cost and
availability
7. Transportation
costs
8. Construction
costs

Local bank

Steel mill

Food warehouse

Public school

MH

MH

MH

MH

MH

MH

Factor
1. Conv. access

Wt.
.15

A
.15(80) = 12.00

B
.15(70) = 10.50

C
.15(60) = 9.0

2. Parking

.20

.20(72) = 14.40

.20(76) = 15.20

.20(92) = 18.4

3. Display area

.18

.18(88) = 15.84

.18(90) = 16.20

.18(90) = 16.2

4. Shopper traffic

.27

.27(94) = 25.38

.27(86) = 23.22

.27(80) = 21.6

5. Operating costs

.10

.10(98) = 9.80

.10(90) = 9.00

.10(82) = 8.2

6. Neighborhood

.10

.10(96) = 9.60

.10(85) = 8.50

.10(75) = 7.5

1.00

87.02

82.62

80.9

On the basis of composite score, A seems the best.

10.
Factor
1. Initial Cost

East #1
8(100) = 800

10

10(40) = 400

3. Maintenance

6(20) = 120

6(25) = 150

6(18) = 108

4. Dock space

6(25) = 150

6(10) = 60

6(12) = 72

5. Neighborhood

4(12) = 48

4(8) = 32

4(15) = 60

1518

1842

1660

2. Traffic

On the basis of composite score, .East # 2 is best.

8-4

East #2
8(150) = 1200

West
8(140) =1120

Wt.
8

10(40) = 400 10(30) = 300

Chapter 08 - Location Planning and Analysis

11.

Factor
1. Business Services

A
9

Location (a)
B
C
5
5

Weight
2/9

Location (b)
A
B
18/9 10/9

C
10/9

2. Community Services

1/9

7/9

6/9

7/9

3. Real Estate Cost

1/9

3/9

8/9

7/9

4. Construction Costs

2/9

10/9

12/9

10/9

5. Cost of Living

1/9

4/9

7/9

8/9

6. Taxes

1/9

5/9

5/9

4/9

7. Transportation

1/9

6/9

7/9

8/9

39

44

45

1.0

53/9

55/9

54/9

Total

Each factor has a weight of 1/7.

39
7

a. Composite Scores

44
7

45
7

B or C is the best and A is least desirable.

b. Business Services and Construction Costs both have a weight of 2/9; the other factors each
have a weight of 1/9.

12.

5 x + 2 x + 2 x = 1 x = 1/9
A
B
C
c. Composite Scores
53/9 55/9 54/9
B is the best followed by C and then A.
x
y
Location
A

Totals

25

20

yi
= 25 = 5.0
(=
= 20 = 4.0
n
5
n
5
Hence, the center of gravity is at (5,4) and therefore the optimal location.
(=

xi

8-5

Chapter 08 - Location Planning and Analysis

13.

Location
A

x
5

y
7

0
15

20

25

30

Totals

23

29

90

xiQi

(=

Qi
xiQi

(=

Qi

5(15) + 6(20) + 3(25) + 9(30)

90
7(15) + 9(20) + 9(25) + 4(30)
90

540
90
630
90

The center of gravity and optimal location is (6,7).

14.

Location
x
y
10
5

Volume in
Tons Per Day
26

25

30

40

28

26

130

(=

xiQi

10(26) + 4(9) + 4 (25) + 2(30) + 8(40)

130
Qi
(=
776
= 5.97
130
(= yiQi
5(26) + 1(9) + 7(25) + 6(30) + 7(40)
=
130
Qi
(=
774
= 5.95
130
Hence, the center of gravity and optimal location.

8-6

= 6.0

= 7.0

Chapter 08 - Location Planning and Analysis

15.
Destination
D1
D2
D3
D4
D5

x, y
Coordinates
1,2
2,4
3,1
4,2
5,3

x=

12,000
3,700

= 3.24

y=

8,500
3,700

= 2.30

Quantity
900
300
700
600
1,200
3,700

xQ
900
600
2,100
2,400
6,000
12,000

yQ
1,800
1,200
700
1,200
3,600
8,500

Plotting the coordinates on the graph given in the problem reveals that L2 is closest
to the center of gravity.

8-7